Standing Committee B

[Sir Nicholas Winterton in the Chair]

Finance Bill

(Except clauses 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and schedules 5, 6, 19 and 25, and any new clauses and schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration.)

Nicholas Winterton: May I welcome hon. Members to the penultimate sitting of the Committee on the Finance Bill 2003? I am convinced that we will remain good humoured and continue to make excellent progress, but I am aware that the Opposition Whip wishes to raise a point of order.

David Wilshire: On a point of order, Sir Nicholas. I wish to raise two matters. First, I express my sorrow that no one was willing to join me in the all-night party, which would have been very brief, so that we could all be here on time this morning after the late sitting last night.
 My other point is much more substantial. You will notice, Sir Nicholas, that my former opposite number, the hon. Member for Bradford, South (Mr. Sutcliffe), is not in his place this morning. I am not complaining that he is not here. He has been whisked away. If nothing else, Whips look after their own, and it would be very unkind of me not to congratulate him on his new post. The only sorrow in his elevation is that a man of such ability would better have been sent to do a job of work for a decent Government rather than the one to which he has been sent.

Nicholas Winterton: I am extremely grateful to the hon. Member for Spelthorne (Mr. Wilshire). It was remiss of me not to congratulate the hon. Member for Bradford, South on his promotion, and we wish him well with his new responsibilities.
 The hon. Member for Spelthorne also enables me to say that two or three people whom I bumped into this morning said that last night was like the good old times, but I suspect that views in the Committee on that matter may well be very mixed.

Dawn Primarolo: Further to that point of order, Sir Nicholas. May I thank the hon. Member for Spelthorne for summing up the best wishes of the Committee to my hon. Friend the Under-Secretary of State for Trade and Industry, who was the Government Whip? I am sure that the Committee also wishes to congratulate my hon. Friend the Member for Gravesham (Mr. Pond) on his appointment as Under-Secretary of State for Work and Pensions. He is also unable to be with us this morning. We shall all miss him greatly, particularly me, but I am sure that, with your guidance, Sir Nicholas, we can proceed through the last stages of the Bill in the same way as our business has been conducted thus far.

Nicholas Winterton: I am grateful to the Paymaster General for those remarks. I am sure that the Committee joins her in congratulating the hon. Member for Gravesham. I seem to be the only one who has not received promotion. [Hon. Members: ''Shame.''] I have lived with that for many years, and no doubt will continue to do so.Clause 143 PAYE on notional payments: reimbursement period

Clause 143 - PAYE on notional payments: reimbursement period

Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: May I, too, add my congratulations to the two hon. Gentlemen on their elevation? I thought that office did not come any higher than Chairman of the Procedure Committee, so I am not sure how your further promotion could be possible, Sir Nicholas. We meet this morning following a decent number of hours in yesterday's parliamentary sitting, and we are bright eyed and bushy tailed.
 The stand part debate on clause 143 deals with the change that allows employees a further 60 days in which to reimburse their employers. The clause is deregulatory and more equitable, and thus attracts our support. We are glad that the Government have listened to representations on this matter, particularly from the Chartered Institute of Taxation. 
 One further caution still resides with the Institute of Chartered Accountants, which welcomes the change but has asked whether the Paymaster General would respond to the consideration that it will not necessarily overcome all the problems arising from what used to be called section 144A of the Income and Corporation and Taxes Act 1988. One solution when repayment is not made within the 90-day period would be to treat the unpaid amount as a loan. Alternatively, an amendment could have been inserted to extend the 90-day period in appropriate circumstances to such a longer period as the Revenue may allow. As the Paymaster General will note, we have not proposed such an amendment and wish to gauge reaction by placing the matter on the record. 
 The Institute of Chartered Accountants has also suggested for tidying up purposes that the Treasury might want to give consideration to consistency across the provisions of the 1988 Act. The period for reimbursement is 90 days, but the notification period for share options under the enterprise management incentive scheme is 92 days and a three-month period could create some standardisation, either at 90 or 92 days. Naturally, it has requested 92 days.

Dawn Primarolo: I am grateful to the hon. Gentleman for welcoming the clause. His reaction has been very supportive. He asked two questions. The first one concerned whether the formal loan agreement is entered into so that the employee is obliged to repay PAYE to the employer. That will count as making good, so will remove the charge under section 222. Of course, if the loan is interest free, if interest is less than interest at the official rate or if the loan is subsequently waived, the beneficial loans and class 1A of the
 national insurance legislation will apply. That is the clarification that he sought.
 Secondly, he asked why the period was not 92 days. From the next tax year, if an employer makes a notional payment to an employee on 5 April, the 90-day period will expire before the employer's 6 July deadline for completing and submitting the taxable benefits form—P11D. That form can include details of amounts not reimbursed. The UK International Chamber of Commerce suggested that the 30-day deadline could be extended to 60 or 90 days, and the Confederation of British Industry also suggested 90 days. 
 Clause 143 shows that we accept those representations in full, and we believe that they fit well with the other legislation. The hon. Gentleman made a more general point about attitudes to legislation, and I would say that as always we keep such matters under review, and should it transpire that further changes would aid smooth operation, the Government would consider them. At present, the provisions are as far as we have been asked to go, and we believe that that is as far as it is necessary for us to go. I commend the clause to the Committee. 
 Question put and agreed to. 
 Clause 143 ordered to stand part of the Bill.

Clause 144 - PAYE: regulations and notional payments

Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: These new provisions have been discussed as part of the tax law rewrite. There is no further technical comment to make, but one point has been raised, and the Paymaster General may wish to reflect on it because it requires immediate attention. Six of the seven subsections are not concerned with notional payments, and as the clause is intended to update the vires for PAYE, the words ''and notional payments'' should be excluded from the heading. That might be an aid to clarification.

Michael Jack: I welcome the clause. I hope that it does stand part of the Bill because it represents another important step forward for the tax law rewrite. Just in case we do not reach new clause 8 with sufficient time to discuss all its content, I should like to observe that the rewriting of the PAYE regulations was a derivative of the main tax law rewrite exercise. It became apparent that it was a necessary and proper area to rewrite, as the helpful explanatory note illustrates. There has been a certain amount of assumption in the way in which PAYE and its regulations have operated since it was first devised in 1943. The rewrite helps to move something that has operated to some degree on assumption into clarified and correctly written law.
 However, I would say to the Paymaster General that that is an illustration of how the by-products of the tax law rewrite are now beginning to accumulate. She will know that, without fundamental changes to 
 the operation of PAYE, recommendations of a policy nature that have arisen from the rewrite exercise are now queueing up, as the regulations once did, for ministerial approval to move them forward into rewritten tax law. Will the Paymaster General, who has been a doughty supporter of the exercise, consider re-examining the issues that are being raised by the consultative and steering committees closely involved in the exercise? They are raising genuine questions on how not only PAYE but other parts of the tax law operate. I commend to her further thought on how the fruits of the labours of the exercise might be deployed more widely to help to improve the operation of the whole of the tax law, just as these rewritten regulations will make their contribution.

Dawn Primarolo: I am grateful to the right hon. Member for Fylde (Mr. Jack), who committed a huge amount of time to the tax law rewrite when he was Financial Secretary in the Conservative Government. I have put on the record before that I am more than happy to follow in his footsteps in ensuring that the tax law rewrite receives support and encouragement from this Government. I undertake to bear in mind the points that he has made on the policy issues, which I will actively consider.
 On the title of the clause, I hear what the hon. Member for Eddisbury (Mr. O'Brien) says, but it is really a matter for parliamentary counsel. His remarks are on the record and I am sure that they can be reflected on. As the right hon. Member for Fylde said, the whole purpose of the measure is to follow through the tax law rewrite with a clear and helpful writing of the legislation. Whenever we can achieve that, we will seek to do so. I commend the clause to the Committee. 
 Question put and agreed to. 
 Clause 144 ordered to stand part of the Bill.

Clause 145 - Payroll giving: extension of 10 per cent. supplement to 5th April 2004

Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: We welcome this extension to encourage charitable giving. It is particularly welcome at a time when charities need to optimise their encouragement of charitable giving, not least because many have suffered loss of income under the so-called pensions tax, when the ACT tax dividend credit was removed in this Chancellor's first Budget, and because of the pressures on charities caused by increased national insurance charges and the continuing bugbear of VAT. It would therefore be helpful if the Economic Secretary could confirm that he and his colleagues in the Treasury, including the Chancellor, are giving genuine consideration to putting the scheme on a permanent basis. Such a move should further increase the amount given to charities and provide certainty for charities, allowing them to plan for the longer term.

John Healey: I am glad of the welcome that the hon. Gentleman has given to the clause. It extends for a further year, until April 2004, the 10 per cent.
 supplement that we introduced in the Finance Bill 2000 on donations made to charity through payroll giving schemes. The intention in introducing a limited-term scheme was to provide a supplement to boost an underused method of giving, and it is achieving that purpose. The scheme is time limited. We do not have plans to make it permanent, and this extension is for one year.
 Donations made in that way increased sharply from £37 million in 1999–2000, before the supplement was introduced, to £55 million in 2000–01 and £72.5 million in 2001–02. Provisional figures for 2002–03 suggest that there will be a further increase in that year. 
 The supplement has encouraged higher levels of giving, and extending it for one more year will allow charities to make the most of their fundraising by encouraging more employers to offer schemes and more employees to make continuing commitments to the charities of their choice through the payroll. Many people in the voluntary sector campaigned for an extension of the supplement, including, not surprisingly, the payroll giving forum of the Institute of Fundraising. Many fundraisers have welcomed the announcement, seeing the extra year as an opportunity to build on and consolidate their achievements so far. I commend the clause to the Committee.

Stephen O'Brien: I am grateful to the Economic Secretary. I welcome the extra year and know that it will be generally welcomed. I know from experience that it encourages employees to give and employers to facilitate that, and it creates a positive attitude to payroll giving. Perhaps consideration could be given to extending it beyond the further year.
 Question put and agreed to. 
 Clause 145 ordered to stand part of the Bill. 
 Clause 146 ordered to stand part of the Bill.

Clause 156 - Life insurance policies and deferred annuity contracts

Nicholas Winterton: The question is that clause 156 stand part of the Bill. I apologise to the Committee. I am keen that we should make progress, but I am slightly overstepping the mark, as I have selected an amendment to this clause.

Stephen O'Brien: I beg to move amendment No. 245, in
clause 156, page 93, line 25, after 'other', insert 
 '(whether or not section 58(1) applies to the disposal).'.

Nicholas Winterton: The hon. Member for Eddisbury took me by surprise by not rising on the previous clause.

Stephen O'Brien: We should be grateful for small mercies, Sir Nicholas. Your pronouncement reminds me of ''Just a Minute''.
 We come to a new part of the Bill dealing with chargeable gains. The amendment would provide clarity and avoid any inference that the reference to a disposal from one spouse to the other might be intended to link with the conditions in a technical provision in section 58(1) of the Taxation of 
 Chargeable Gains Act 1992. That section restricts the no-gain, no-loss treatment of disposals from one spouse to another while they are living together and during the residue of the current tax year after they separate, which could be as short as one day. It has been pointed out many times that that causes problems with financial arrangements on divorce, and proceedings are commonly not concluded for some time after that. 
 The Law Society and others have argued for an additional two years of assessments to be allowed, especially in view of recent trends in high-value divorce cases. Subsections (5) and (6) of the clause recognise, for the first time, the significance of post-marriage transfers in the limited context covered by the clause, and protects the spouse who receives a life or deferred annuity policy as part of the financial arrangements from being taxed on maturity of the policy. Were it not for subsection (5)(a), a negotiated divorce package would involve the actual consideration of whatever either party was disposing of. The actual disposal from one spouse to the other would generally not involve a chargeable gain on the disposal as a result of the revised section 210(2) and (3) of the 1992 Act. In those circumstances, section 58(1) and its question on whether they were living together or had been doing so within the tax year of the disposal would be immaterial. 
 The policy intention seems to be that the question is not intended to be relevant in the revised section 210, and that actual consideration given between spouses should be disregarded if the disposal is made at any time prior to the final dissolution of the marriage, irrespective of how recent or otherwise the separation is, and after then if the conditions in subsection (6) are satisfied. Subsection (5)(a) should, however, put it beyond doubt that that is how the provision is meant to work. That is the purpose behind amendment No. 245.

Dawn Primarolo: The clause corrects two separate defects in the rules for taxing capital gains on second-hand life insurance policies. People have been exploiting the defects to avoid paying tax on their gains, and we are correcting those defects as part of our commitment to fairness in taxation.
 The first defect in the current rules allows people to generate capital losses for tax purposes that could far exceed any economic loss that they have suffered. There is increasing evidence of schemes in which the whole purpose is to exploit that loophole. 
 The second defect allows capital gains to escape a charged tax simply because the person making the disposal received the policy as a gift. A classic example is when a husband buys a second-hand life insurance policy as an investment. In his hands, any capital gains on the policy would be liable to tax, but if he gives the policy to his wife, all capital gains that she realises are free of tax. The clause closes both loopholes and puts an end to the avoidance. 
 I have no quarrel with the intention behind amendment No. 245, but in my view it is entirely unnecessary, and I hope that when the hon. 
 Gentleman has heard my explanation, he will consider withdrawing it. As he said, the concern that prompts the amendment is that the provision that it is intended to clarify may apply only in cases in which the husband and wife are living together at some stage in the tax year in which one transfers the insurance policy to the other. I assure the Committee that that is not so. The provision applies to any transfer between husband and wife, irrespective of whether the couple are living together as man and wife, or have separated. The additional words that the amendment would insert are unnecessary and, as they add nothing to the legislation, it is better to omit them. There is no danger that people will misunderstand the scope of the provision. Its meaning is clear. 
 Having given that assurance, I hope that the hon. Gentleman will consider that his point has been answered and will withdraw his amendment, but if he does not, I ask my hon. Friends to oppose it.

Stephen O'Brien: It will be helpful to have that exchange on the record. I am sure that those who have been concerned about the matter will find the Paymaster General's comments helpful when it comes to clarification. On the basis that the last thing that I would ever want to do is add otiose words, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Stephen O'Brien: I beg to move amendment No. 298, in
clause 156, page 93, line 41, leave out from beginning to end of line 10 on page 94.

Nicholas Winterton: With this it will be convenient to discuss amendment No. 299, in
clause 156, page 94, line 43, at end insert— 
 '(1A) For each of sections 541(1)(a)(i), 541(1)(b)(i) and 541(1)(c)(i) of the Income and Corporation Taxes Act 1988 substitute— 
 ''(i) in any case where, immediately before the chargeable event in question, the rights conferred by the policy or contract were vested in a person (other than the original policyholder) who had acquired those rights for a consideration in money or money's worth, the sums which would be allowable as a deduction for the purposes of computing a gain pursuant to Section 38 of the Taxation of Chargeable Gains Act 1992 and, in any other case, the total amount previously paid under the policy by way of premiums; and''. 
 (1B) For section 543(1)(a)(i) of the Income and Corporation Taxes Act 1988 substitute— 
 ''(i) in any case where, immediately before the chargeable event in question, the rights conferred by the contract were vested in a person (other than the original policyholder) who had acquired those rights for a consideration in money or money's worth, the sums which would be allowable as a deduction for the purposes of computing a gain pursuant to Section 38 of the Taxation of Chargeable Gains Act 1992 and, in any other case, the total amount previously paid under the contract, whether by way of premiums or as a lump sum consideration, reduced in either case, if before the happening of the event one or more payments have been made on account of the annuity, by the capital element in that payment or payments, determined in accordance with Section 656; and''.'.

Stephen O'Brien: This matter requires some concentration and is complex. Amendments Nos. 298 and 299 go together and are intended to deal with a
 problem that I will now describe. I am indebted to the Association of Policy Market Makers, which has been in touch with the Treasury and the Inland Revenue about the point. I hope that members of the Committee will understand that we are discussing the active trade that has grown up over the past 15 years in second-hand life insurance policies. When the legislation to which clause 156 relates was framed, the growth of the market had not been anticipated. The amendments identify and, we hope, address that problem of legislation predating the growth of the secondary market.
 The Association of Policy Market Makers, which represents the interests of the majority of companies that buy and sell second-hand life insurance policies, says that clause 156 proposes revisions to section 210 of the Taxation of Chargeable Gains Act 1992 to counter tax avoidance schemes that have exploited anomalies in the current rules. As the Paymaster General knows, all Members seek to ensure that the Revenue secures its due receipts. None of us seeks to promote tax avoidance schemes. 
 Subsection (3) of proposed new section 210 seeks to correct a defect in the current legislation, which allows a husband and wife to avoid capital gains tax on the disposal of a life insurance policy acquired in the secondary market as an investment—some of those issues were raised by the previous amendment. Subsections (7), (8) and (9) of proposed new section 210 seek to counteract an anomalous consequence of the application of sections 37 and 39 of the Taxation of Chargeable Gains Act 1992 on the disposal of certain types of life insurance policies under certain circumstances, which currently enables the creation of artificial capital losses by the acquisition and disposal of life insurance policies. 
 The problem does not, however, lie with sections 37 and 39, which are properly aimed at avoiding the double taxation of gains and the duplicated deduction of allowable expenditure. The chargeable event legislation, with which I am sure Members will be familiar—in particular, sections 541 and 543 of the Income and Corporation Taxes Act 1988—applies to purchases of second-hand or traded policies. The anomaly lies in the fact that the chargeable event legislation seeks to levy income tax on the disposal by an investor of a traded policy on an amount that is unrelated to the gain made by the investor. That mismatch should be corrected. 
 The APMM takes the view that the prevention of the creation of such artificial capital losses could be achieved more simply and effectively by amending sections 541(1) and 543(1) of the Income and Corporation Taxes Act 1988, which would treat the cause rather than the symptom. It therefore recommends that clause 156 should be amended by amendment No. 299. 
 If I can crave the Committee's indulgence, it might be helpful if I go through a worked example. I dare say that the Paymaster General will agree that the old situation was nonsense. The proposal in the Bill is also nonsense, but it is unquestionably in the Inland Revenue's favour. The alternative proposal contained in the amendments is not only better but reflects the 
 true position on tax and economic gain—we are, after all, dealing with chargeable gains. 
 Let us imagine a policy with a full market value of £100,000 that has been bought in the secondary market. To find out the gain for income tax one would, under the old system, take into account not only the premiums paid by the previous policyholder, but the premiums paid by the person who had subsequently bought it. If the lifetime premiums were £25,000, the gain for income tax purposes would be £75,000. If one keeps the £75,000 income gain in one's mind, one can examine the capital gains tax treatment. 
 If the market value of the policy were £100,000 and the premiums paid by the person who bought it second hand were £5,000, the investment price would be £70,000 because the £20,000 of premiums paid by the previous holder would not be computed. A loss of £70,000, which is the investment price, would therefore be computed for the capital gain. The allowable CGT loss under the old system was £70,000, which was patently nonsense because a loss would be created although there had been no genuine economic gain or loss. 
 Considering the same example under the proposal in the Bill, a policy with a market value of £100,000 would have the £25,000 of premiums paid deducted from it leaving a gain for income tax of £75,000—so far, there is no difference. On the capital gains tax treatment, however, the £100,000 of the market value and the £5,000 of premiums paid by the new secondary owner would be disregarded. The investment price of £70,000 would be deducted to show a capital gain of a loss of £70,000, which would leave an economic gain of £25,000. The Revenue would suddenly have an economic gain, which would not be the true gain, while the allowable CGT loss would, of course, have been reduced to nil. 
 The APMM proposal is an easier way to understand the problem and is therefore more elegant. Under it, the market value would be £100,000 and the investment price—what somebody paid for the policy—would be £70,000. Knocking off the investment price and the £5,000 of premiums paid by the secondary owner would leave a gain for income tax purposes of £25,000. For income tax purposes, the figure would be £25,000 under the APMM proposal and £75,000 under the previous two examples. 
 For the purposes of CGT, the £100,000 market value would be disregarded under the APMM proposal. The £5,000 premiums paid by the current owner would be knocked off the income, which we have dealt with. The investment price of £70,000 would also be disregarded leaving a capital gain of zero, which is exactly where the proposal in the Bill ends up. Those examples may bear further study by reading the record, because words are the currency of Hansard; it would have been easier if I could have put up a slide and gone through a presentation. The amendments are not only a genuine attempt to establish the true economic gain, but are a more elegant and simple way to achieve the same result. I admit that it was difficult to present the example, but I hope that the amendments will elicit a favourable response from the Paymaster General.

Rob Marris: Can the hon. Gentleman explain how his example materially differs from that given in the explanatory notes?

Stephen O'Brien: I could if I put the two documents together side by side. Example 2 in the explanatory notes shows what happens under the old system, and I described it in my first example. I described three columns of figures, and example 2 in the explanatory notes was my starting point. My second example concerned the proposal in the Bill. The old system would leave an allowable CGT loss of £70,000, which we all accept is not logically defensible. The proposal in the Bill would leave an economic gain of £25,000, which equally bears no relation to the true position underlying the transaction. The APMM proposal, in what is for various reasons an increasingly important and growing market, would reduce the gain to the true economic position. That would be a nil gain, with the normal things netted off, and the income tax would again be caught on the true income tax position. The Revenue would then achieve its aim of removing the artificial loss created in the original proposal, but would also have found a logical way of producing a calculation related to the true economic gain while not losing sight of the normal charging for income tax.

Dawn Primarolo: I shall briefly refer to the example that the hon. Member for Eddisbury gave, then respond specifically to the group of amendments. In moving the amendment, he flagged up that this is a sophisticated and somewhat complex market.
 On the hon. Gentleman's example, it should not be possible for someone to lose money on a second-hand life insurance policy but still have income tax to pay on a gain, as shown in a recent edition of Taxation. It is theoretically possible for an income tax charge to arise when no profit has been made, although the amendment does not satisfactorily address that. However, in practice, such cases do not arise in any great number. The commercial market is almost always a market for policies on which income charges do not arise. It is a sophisticated market, as the hon. Gentleman has acknowledged, and those involved in it are well aware of the tax rules. If an income tax charge might exceed the real profit, the financially astute investor will not lose out because he or she will adjust the purchase price accordingly. 
 As I have already said, the amendment does not work properly. It has long been recognised that the sale of life policies does not sit well in the regime for taxing life policy gains. That has been the case since those transactions were brought into charge in 1983. The amendment seeks to deal with some of the difficulties but would cover only assignments for consideration of all the rights under a policy. To work properly, it would also have to cover assignments for consideration of part of the rights under a policy. Getting the rules right for such transactions would involve changing the way in which all part withdrawals and assignments are dealt with. 
 Those rules are very complex and changes would only add to the complexity. They would probably involve getting rid of the present facility that allows withdrawals of up to 5 per cent. of premium without immediate tax consequences. Such a change would affect the hundreds of thousands of policyholders who make regular withdrawals from their life policies. It would be wrong to make such a change unless there were very good reasons for doing so. 
 So far, we have seen no compelling evidence that the accepted weaknesses caused by the 1983 change to the regime are causing serious difficulties, either by way of double tax charges or to the professional market in second-hand policies. However, if the hon. Gentleman has evidence that there are serious difficulties, I should be pleased to see it. That statement has also been made to those who have made representations on this matter. We would then need to consider whether and what changes might be necessary. 
 These are difficult and wide-ranging issues, and careful consideration of the impact of change would be needed. There is no question of changes this year, but if there is real evidence of difficulty, as opposed to the explaining of a theoretical possibility, I will examine it to see whether it would be appropriate to introduce some suitable measure next year. However, in the absence of real evidence, when only theoretical possibilities are being advanced, I see no grounds for accepting the amendment. 
 In summary, the case for change by showing the real effect has not been made. The amendment would not be effective to cover part assignments. We would need more fundamental change than the hon. Gentleman suggests. Insurers would not meet their obligations to the policyholders and, in the absence of a problem having been demonstrated in practice, change is not justified at this stage. I hope that the hon. Gentleman will therefore accept my offer—which is to him and to those who read the record—that if there are real examples of significant damage, I will happily consider them and review the position. What I will not do today is accept the amendment, because of the further implications for a complex market. Should he press it, I shall ask my hon. Friends to oppose it.

Stephen O'Brien: I am grateful to the Paymaster General for taking my points on an admittedly complex matter seriously. I have listened carefully as she has progressed through her arguments. I am cognisant that the old situation is nonsense—as I think we all accept—and the new proposals in the Bill therefore reflect the need for change. I think that we are at one that change is required. It would be unfair of me to say that the Paymaster General actually said this, but I felt that implicit in her remarks was the admission that the measure is the Revenue's and the Treasury's best attempt to put the situation right. There has been an admission that this matter is very complex, and an attempt to call on those who might have evidence of anything that needs to be further considered to produce that evidence.
 In going through this complex market, it has been recognised that many matters can be worked out theoretically, and that has been addressed. I think that the APMM made a fair representation in giving worked examples to show why the measure in the Bill might not necessarily be a perfect and logical way of arriving at an economic gain, when that does not necessarily relate to the real world. That is the current position, a change from the previous nonsense position. 
 Having listened carefully, and accepted that the double taxation point has already been addressed, I shall not ask my right hon. and hon. Friends to vote on the amendments, as I think it important not to engage in gestures. The offer to keep the matter under review, listen to anyone who can produce evidence on the operation of the new proposals and address further issues, is constructive. What has been put on the record will be helpful to all concerned and, on that basis, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Stephen O'Brien: I beg to move amendment No. 246, in
clause 156, page 94, line 44, leave out '9th' and insert '16th'.
 This is a simple matter. It is clear why the Government have felt it necessary to make the changes. My only concern is that the clause does not take account of the fact that, whereas some second-hand policies of assurance have been acquired for tax planning purposes, many more have been acquired as perfectly ordinary investments. The application of the provisions might, therefore, be considered too wide. 
 In particular, we are concerned that if a second-hand life assurance policy is used as security for a loan, and a lender takes a charge over it, it would be treated as a disposal of an interest in the life assurance policy, notwithstanding an important, related part of tax law, section 26 of the Taxation of Chargeable Gains Act 1992. It is wrong in principle that the changes should apply from Budget day rather than the publication of the Finance Bill. 
 As Committee members will spot, the amendment would simply change the date from 9 to 16 April. The Budget day press release did not state with sufficient precision the manner in which the computational rules were to be altered to allow a taxpayer who made the disposable policy between Budget day and the publication of the Finance Bill to know how a loss on the disposable policy would be calculated. We propose to change the date to 16 April, which was the date of the publication of the Finance Bill. I am happy to be corrected if that was not the actual date. This is a point of detail and clarification. I hope that it would not have a major impact; I do not believe that it would, so I hope that it will find favour with the Paymaster General.

Dawn Primarolo: I shall ask the Committee to reject amendment No. 246, which as the hon. Gentleman explained puts back by a week the date when clause 156 has effect. There are two grounds why I cannot agree to the delay that the amendment would create. First, I do not accept that the Budget note published by the Inland Revenue gave insufficient details of the proposed change. It contains simple but clear
 statements of the two defects in the current rules and how each loophole is stopped by clause 156. It also explains the other changes that the clause makes.
 The level of detail in the Budget note is standard for changes that are relatively straightforward, such as those in clause 156. There is no evidence that the information provided by the Inland Revenue was inadequate. It is quite usual for draft legislation relating to anti-avoidance measures that take effect from Budget day to be published for the first time in the Finance Bill. 
 The second reason for rejecting the amendment is that the people who have most to gain from any delay are those seeking to avoid tax by exploiting the loopholes that are closed by the clause. A delay could also cause some people to lose the benefit of the provision that prevents certain policies from becoming liable to a capital gains tax charge. 
 The hon. Gentleman went on to make two points. He said that clause 156 was too widely drafted, which was the point made by the Chartered Institute of Taxation. It is entirely right that capital gains made on ordinary investments should be liable to tax. Equally, there is no reason to allow losses for tax purposes that are greater than any economic loss. The clause does not deny relief for all losses. It has been drafted carefully to restrict tax losses to the amounts that people genuinely suffer. His second point regarded security for a loan. There is no disposal for capital gains tax purposes when someone uses an asset as security for a loan. No liability can arise because the second-hand life insurance policy is used as security in that way. 
 In short, there is no evidence that delaying the change made by clause 156 would help ordinary investors in second-hand life insurance policies. A delay could have the undesirable effect that I have mentioned of making certain policies liable. Therefore, I hope that the hon. Gentleman will consider withdrawing the amendment, but if he presses it to a vote, I shall ask my hon. Friend's to oppose it.

Stephen O'Brien: This point of clarification is clearly being made for the sake of good order, and it would be wrong to detain the Committee by pressing the amendment to a vote. I have put the matter on the record, and the Paymaster General sought to defend the clarity of Revenue Budget note 30. I hope that those who have a need to refer to our proceedings will find the clarification that resulted from the exchange helpful. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 156 ordered to stand part of the Bill.

Clause 157 - Application of market value rule in case of exercise of option

Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: The clause deals with the application of the market value rule in case of exercise of option.
 The Chartered Institute of Taxation has raised points about a matter of which the Paymaster General and the Revenue are aware. Therefore, I hope that simply mentioning it will elicit a response about the institute's concern that the provision will have unforeseen applications. We do not propose any amendments to the clause, but hope that clarification will be forthcoming from the Revenue. There is no need to detain the Committee further.

Dawn Primarolo: The clause reverses the effect of a recent Court of Appeal decision about the way in which capital gains and losses are worked out when certain options are exercised and assets are acquired or disposed of as a result. The effect of the court's decision was, on the one hand, to create a capital loss where there was no economic loss for some taxpayers who exercised options, mainly those who exercised unapproved employee share options, while, on the other hand, to create an additional tax bill in excess of the sum that those who granted the options, mainly employee benefit trusts, received for granting and satisfying the option. The clause restores the law to that generally thought to apply before the court's judgment and removes the unintended loss and the additional tax bill.
 On the questions put by the Chartered Institute of Taxation, it said at the time that the 
''Chancellor has made a wise decision in reversing an unexpected ruling by the Courts over tax relief on share options.''
 I understand that the institute has subsequently asked for clarification from the Revenue. I am happy to put on the record that a detailed response will be forwarded to it. If the hon. Member for Eddisbury feels that the response would be helpful to him, I shall ensure that he also receives a copy.

Stephen O'Brien: I am grateful to the Paymaster General for that offer and look forward to receiving the response.
 Question put and agreed to. 
 Clause 157 ordered to stand part of the Bill.

Clause 158 - Reporting limits and annual exempt amount

Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: Clause 158 has attached to it schedule 28, which you will call separately, Sir Nicholas. The Chartered Institute of Taxation has welcomed the Revenue's continuing attempts to simplify the tax system, which were begun by the previous Conservative Government and have been maintained by this Government. We are at one on the importance of that progressing.
 However, in the institute's opinion, the changes introduced by proposed new section 3A are disappointingly small. Taxpayers will still have to calculate their capital gains in order to know whether they fall within the exemption from detailed disclosure. The Law Society of Scotland also notes that in many cases there will still be a burden on the taxpayer to complete the necessary calculations to determine whether he falls within the reporting 
 exemption, even if the forms do not require to be submitted. Therefore, the only effort that taxpayers will be saved is that of transferring the results of their calculations to their self-assessment forms. 
 The Chartered Institute of Taxation seeks confirmation that the calculation to determine whether the aggregate consideration exceeds four times the annual exempt amount is to be performed in the same way for trustees as for individuals. That is quite an important point and would easily be dealt with by a note from the Revenue. I hope that the Paymaster General will confirm that that is likely to be forthcoming. 
 Certain representations from the Institute of Chartered Accountants in England and Wales reflected slightly stronger concerns. However, it might be better if those matters were dealt with in a Revenue note. I know that the points are with the Revenue and the Treasury, and I hope that we will get a commitment that they will be considered and that any clarification needed will be forthcoming.

John Baron: I rise in support of my hon. Friend's point about simplification. The attempts to simplify the issue only go so far. I put it to the Paymaster General that simplification should be to the benefit of both the Inland Revenue and the taxpayer. There seems to be hardly any real benefit to taxpayers. As far as I can see, they will still have to incur the cost or the personal burden of performing the necessary computations to see whether they fall within the new rules. The only beneficiary from the so-called simplification appears to be the Inland Revenue, which will be relieved of a fair number of capital gains tax pages in the self-assessment returns. Will the Paymaster General address that point? It will be of interest to a good number of taxpayers.

Dawn Primarolo: The clause cuts red tape. Few of those liable to pay capital gains tax will need to fill in the capital gains tax pages of the tax return. The clause will lead to a 15 per cent. cut in the number of those with no tax liability who need to fill in the capital gains tax pages. The main beneficiaries are likely to be taxpayers who do not employ professional advisers to complete their tax forms.
 The hon. Members for Eddisbury and for Billericay (Mr. Baron) made a couple of brief points. The hon. Member for Eddisbury said that people still need to make the calculation. People will still need to work out whether they have a tax liability, but often it will be obvious from a rough sum that there is no tax to pay. As a result of the clause, there will be fewer cases in which precise calculation is needed to fill out the form. It will save people time and trouble. 
 The second point made by the hon. Gentleman, and echoed by his hon. Friend, was that the clause still leaves too many people filling in the capital gains tax forms. Obviously, the Government need to strike a balance. We need to protect the tax base, both from evasion and from honest mistakes, so the Inland Revenue needs to see forms from some people who think that they may have no tax liability. However, 
 under the clause those with simple affairs and modest disposal proceeds and gains will no longer have to fill in the capital gains tax pages of their tax return. As I said, that will benefit taxpayers who do not use agents to deal with their tax affairs. Such individuals are more highly represented among those with modest disposals. 
 On the point made by the hon. Member for Eddisbury about guidance for trustees, I confirm that the Revenue will provide clear guidance for trustees in the notes on tax returns. 
 The hon. Member for Billericay referred to simplification. The guidance notes will give simple explanations for taxpayers, although it would have been simple just to raise the level of disposable proceeds that trigger the need to fill in a form. The legislation is longer because we wanted to cut the number of forms further by taking account of the taper relief. We also wanted to ensure that the situation is clear for trustees as well as individuals—the hon. Member for Eddisbury referred to that. In balancing those priorities—the Committee will agree that they are correct—it is not always as straightforward as going just for the simplest option. We have struck a balance between the need to complete the capital gains tax sections of the self-assessment form and the need to reduce that requirement as much as possible, making the guidance as simple as possible. I hope that the Committee will welcome the clause on that basis.

Stephen O'Brien: I am grateful to the Paymaster General for her helpful explanation, and particularly the information that the notes will cover trustees as well as dealing with the points raised by my hon. Friend the Member for Billericay about simplification. That was a helpful exchange and we shall support the clause.
 Question put and agreed to. 
 Clause 158 ordered to stand part of the Bill. 
 Schedule 28 agreed to.

Clause 159 - Taper relief: assets qualifying as business assets

Stephen O'Brien: I beg to move amendment No. 247, in
clause 159, page 96, line 45, leave out 'or an eligible beneficiary'.
 The clause is a welcome relaxation of the definition of business assets for the purpose of taper relief and yet another example of what I and the Chartered Institute of Taxation believe is the success of the co-operation between the Inland Revenue and the professional bodies on the CGT review group. However, the institute says that the resulting legislation is ''appallingly complex''. Saying that it is a success and appallingly complex sounds almost like an oxymoron. Surely the provisions could be made much simpler by providing that any asset used in a trade is a business asset, subject to exceptions. The institute suggests that the exceptions would apply in a limited number of situations in which the trader is a quoted company and that, as the exceptions would be so limited, thought should be given to providing that all assets used in a trade are business assets. The Paymaster General may have a view on where the de 
 minimis rule would cut off or may want to reflect on that. 
 Different implementation dates of definitions of business assets have led to the need for complex apportionment and to anomalous tax charges. The institute suggests that all current definitions of business assets should apply from the introduction of taper relief. If that is unacceptable, the institute suggests as an alternative that they should apply from 6 April 2000. 
 The Law Society has also considered the matter carefully and has come up with some amendments. We are discussing amendments Nos. 247 and 248 separately. Amendment No. 247 would simplify the interpretation of sub-paragraph (3)(a) in subsection (3) of the clause, which introduces new sub-paragraph 5(3) of schedule A1 of the Taxation of Chargeable Gains Act 1992. The Law Society suggests that sub-paragraph (3)(a) is wrong in referring to an ''eligible beneficiary''. As a matter of syntax, that could have one of two meanings. First, the reference could be to a trade carried on by an eligible beneficiary, but that is probably not the natural interpretation because it spans the paragraph break, but that would be covered by the new sub-paragraph (1A). Secondly, the reference could be to a company that is a qualifying company by reference to an eligible beneficiary. That is probably what is meant, but does not fit with paragraph 6 of schedule A1 because, even when the relevant conditions focus on an office or employment of an eligible beneficiary, the company still qualifies 
''by reference to the trustees''.
 For that, reference must be made to paragraphs 6(2) and 6(2A). 
 The meaning of the provision could be clarified simply by omitting the words ''or an eligible beneficiary''. I like to believe that our generosity in providing the opportunity for the Paymaster General to accept the amendment will enable that clarification to be forthcoming.

Dawn Primarolo: The rules defining business assets other than shares for taper relief purposes have been rewritten with effect from 6 April 2004. Everything that is currently a business asset will remain so, but some assets used for trading purposes which do not currently qualify will begin to do so from that date. Unfortunately, I must disappoint the hon. Gentleman.

Stephen O'Brien: Oh, not again.

Dawn Primarolo: Yes. Life is tough. However, when the hon. Gentleman hears my explanation, he may decide that his amendment is a probing amendment.
 The amendment would delete the reference to ''an eligible beneficiary'' in the revised version of paragraph 5 of schedule A1 to the Taxation of Chargeable Gains Act 1992. The reason for the amendment seems to be to delete what are considered to be unnecessary words that may give rise to confusion on the assumption that all companies that qualify by reference to an eligible beneficiary of a settlement are also qualifying companies by reference 
 to the trustees. Separate provision is made for those in the revised paragraph. 
 That assumption is not accurate. For example, a listed trading company that is a qualifying company by reference to a beneficiary solely because it is able to exercise 5 per cent. or more of its voting rights is not a qualifying company by reference to the trustees on account of the beneficial interest in it. If the amendment were to succeed, certain assets owned by trustees but used by companies for the purpose of their trade would cease to be business assets from 6 April 2004. Instead of extending the business asset taper relief, the amendment would curtail it. I am reasonably confident that that is not the objective that the hon. Member for Eddisbury is seeking to achieve. None the less, if he presses the amendment to a vote, I shall ask my hon. Friends to oppose it. 
 The hon. Gentleman raised two further points about backdating and apportionment. The purpose of the clause is to change the behaviour of landlords when they consider letting in future. The clause benefits landlords who have already let a property to unincorporated traders, but in such cases the taxpayer obtains no change in behaviour from the relief, so the costs are dead weight. We need to maximise the value for money of tax reliefs. However, we always consider whether there are reasons for backdating a change in definitions. For example, in the Finance Act 2001, we extended business asset taper relief to shares held by certain employees of non-trading companies, because savings in compliance cost justified the backdating. The cost of backdating the clause outweighs the benefits so has not been considered. 
 Apportionment is needed because the two tapers, business and non-business, are required to distinguish productive from passive investment. The Inland Revenue has clearly set out the rules that underpin apportionment in the leaflets and help sheets that accompany self-assessment tax returns. 
 I do not understand why there is confusion over the meaning of the legislation. It refers to a company that is 
''a qualifying company by reference to the trustees of the settlement or an eligible beneficiary''.
 The phrase ''by reference to'' must necessarily relate to the words that follow it, so a company is a qualifying company by reference to the trustees or by reference to an eligible beneficiary. Eligible beneficiaries carrying on a trade are covered elsewhere in the clause. With that rather full explanation, I hope that the hon. Gentleman will be able to suppress his disappointment that I cannot accept the amendment, and will consider withdrawing it. If he does not, I shall ask my hon. Friends to oppose it.

Stephen O'Brien: Well, suppression may be the order of the day—we shall have to find out. I am grateful to the Paymaster General, who gave a fairly full explanation of the points raised. In particular, I am grateful for her clear statement on what is intended by the wording,
''a qualifying company by reference to . . . an eligible beneficiary''
 Her confirmation that ''by reference to'' is to be interpreted according to the words that immediately follow it is important to have on the record. 
 On the basic assumptions, I am grateful for the various representations that have been received from the professional bodies on the matter, not least the Chartered Institute of Taxation and the Law Society. They will be able to test whether their assumptions in advising us are as laid out by the Paymaster General, particularly in relation to the 5 per cent. issue and to the trustees. The last thing that we intend is to curtail rather than extend a benefit. On that basis, and given the clarifications that have been forthcoming, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Stephen O'Brien: I beg to move amendment No. 248, in
clause 159, page 97, line 41, leave out '6th April 2004' and insert '9th April 2003'.
 I fear that the Paymaster General may have addressed the issue raised by the amendment in her previous comments. I therefore rise with disappointment etched on my features, knowing her view already. This now seems an even more thankless task than usual. Nevertheless, I think that it would be right to make my point, given that not only the Law Society but the Institute of Chartered Accountants in England and Wales and the Law Society of Scotland have identified it. The amendment would change the commencement date. 
 Clause 159(5) states that the clause's provisions will not come into effect until 6 April 2004. Despite the Paymaster General's already well-flagged position, it seems unduly grudging to bring in this change in status only a year ahead, given the apportionment provisions that will apply where a property switches from non-business to business status at 6 April 2004. This deferral risks distorting investment decisions in the run up to that date. Intending investors will be anxious to avoid the risk of having to undertake complex computations following disposals in future as a result of a short period of non-business use prior to 6 April 2004. According to the Law Society, there is no reason why the provisions could not commence from Budget day—9 April—this year. 
 I note that the Paymaster General's flagged response is that the costs and benefits do not lead her to believe that the date can be brought forward. Perhaps on this occasion, however, she may wish to reflect on the potential distorting effect of the measure, which might be counterproductive for the marketplace and the Revenue. The amendment has been supported by others, who feel that the position is unnecessarily grudging. Anticipating what the reply will be, it is nonetheless with genuine intent that I move the amendment.

Nicholas Winterton: I am sure that the Paymaster General can deal with the matter without repetition.

Dawn Primarolo: When I referred briefly in the previous debate to the question of dead-weight cost, I did not refer to how much that would be. Perhaps I should do so now. The hon. Gentleman's amendment would bring forward the commencement date of the provision, which would entail significant cost to the Exchequer: some £35 million over five years. Most
 importantly, there would be no payback or benefit. The Committee has discussed the point concerning benefits over and over again, and hon. Members have pressed Ministers on it.
 The clause will encourage landlords to plan for the future. The hon. Gentleman said that to delay the process would be unduly grudging. We would like landlords to let their properties to unincorporated as well as incorporated traders. By announcing the measure now, landlords can let their properties to unincorporated traders, safe in the knowledge that when they finally sell their property it will qualify as a business asset from 6 April 2004. 
 The hon. Gentleman touched on an important point, which was the question of distortion in the market. Frankly, I would expect landlords with vacant properties, particularly in the current state of the property market, to prefer to let them sooner rather than later to ensure that they have an income stream for this year. By announcing the measure for next year, they can be assured that their property will be treated as a business asset for letting during the period from 6 April 2004. Where landlords earned from their assets for a longer time after 2003, any period of non-business use in 2003–04 will have only a small effect on the amount of the taper relief when they come to sell. I would expect prospective property investors to take many factors into account before they buy a property, not just their capital gains tax position. 
 We have announced the measure for implementation next year. That gives landlords and property investors certainty over their ultimate capital gains tax position, should they rent their property to an unincorporated trader. I see no justification at all for bringing in the proposals of the amendment, which would create costs for the Treasury with no obvious gain to the taxpayer. I therefore urge my hon. Friends to oppose the amendment should it be pressed to a vote.

Stephen O'Brien: I have listened carefully to the Paymaster General and her position will reflect well on the record. The only point I would make relates to the amendment, and points raised on previous ones. The Paymaster General talks about a cost to the Revenue were the amendment to be accepted—in this case she cites a figure of £35 million—and she knows full well from our arguments that it is not our business to incur charges or costs to the Revenue that were not intended. On the contrary, we have continually maintained that it is right that the Revenue should seek to secure its proper dues.
 I do not know whether there is a precedent for this—perhaps not—but calculations, or at least an estimation, that show how the £35 million had been arrived at would be very helpful in understanding the background to why the Paymaster General resists some amendments and why some arguments have not found favour with her.

Michael Jack: I am grateful to my hon. Friend for pursuing that very interesting point. The Paymaster General qualified the figure by saying that it covered five years; therefore, the sum is £7 million. However,
 does he agree that we have no indication as to whether the calculation took into account potential reinvestment by those whose tax liability would be lower in new economic activity that would thereby create further taxable opportunities?

Stephen O'Brien: My right hon. Friend has made an exceptionally insightful and helpful point, which demonstrates the way in which he was very well prepared when roles on the Committee were reversed. He understood how such calculations were made.
 I hope that my right hon. Friend supports my position, which is that it might be helpful for the purposes of our deliberations if we were to have, at least in summary, a breakdown of the way in which the calculations work. It would help not only those who make representations to us, but those in the Opposition who seek to scrutinise the Bill, to understand it in the fullest possible way and to come up with constructive and clarification points as well as genuine criticisms. 
 I do not know whether the Paymaster General wishes to respond now or on a future occasion, but it would be helpful to know the basis of the calculations. We have heard several defences against amendments using the argument of the potential costs to the Revenue. Having the calculations might well be the easiest way to clarify why some representations have not found favour and why on other occasions the arguments were revisited even though there was not necessarily agreement on the calculations. I shall be prepared to withdraw the amendment on that basis, but I sense that the Paymaster General wishes to say something further.

Dawn Primarolo: I apologise. I have lost my voice.

John Healey: And sense of timing.

Dawn Primarolo: And my sense of timing. I apologise to the hon. Gentleman. I did not wish to distract him. I absolutely appreciate his point about the cost of Opposition amendments. How could he know the costs until we have seen the amendments and calculated the costs? I offered the explanation that the cost was one reason why I was not convinced by the amendment.
 On implementation and costs, the hon. Gentleman will find an explanation of the costings in appendix A2 of the Red Book. However, let me say that I do not provide figures to put him at a disadvantage or to catch him out but as information for the Committee.

Stephen O'Brien: That has been a helpful exchange. I shall look at appendix A2 of the Red Book. However, I believe that the calculations are important in understanding the background to the issues and the way in which the Treasury and the Revenue react to genuinely constructive suggestions that are put forward by way of amendments. On that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nicholas Winterton: I have received a request from the Opposition spokesman for a very brief stand part debate on the clause.
 Question proposed, That the clause stand part of the Bill.

Stephen O'Brien: An interesting point arose somewhat late in the process and, therefore, will not get the amendment treatment. As we know, clause 159 extends taper relief to assets that were business assets under the old regime. Clearly, that is welcome. However, woodlands have been neglected. There are many who would understand that they are very important. I accept that that may come as something of a bolt from the blue, and I am most grateful for a number of representations that we have received on it.
 The number of trees planted in Britain fell in 2001, the last year for which figures are available, by more than 25 per cent. to 13,900 hectares—half the level of the late 1980s. That is a pretty devastating statistic. That happened in spite of the fact that the Government made an election pledge to increase the amount of woodland in Britain. Reading that, I find a political point that I had not picked up myself. I am most grateful to those who made representations. 
 Only 11.6 per cent. of the UK is wooded compared to 27.9 per cent. of France and 30.7 per cent. of Germany. Adding a capital gains tax disadvantage is hardly going to help. Those who are interested in the subject—I think that there are many who have an environmental agenda—might want to look more deeply into the matter. The Forestry Commission website is very helpful. 
 The Revenue has confirmed its view in a letter that business asset taper relief is not applicable to commercial woodlands. The letter states: 
''I can confirm that the legislation on taper relief does not extend business assets taper relief to commercial woodlands for capital gains tax purposes. Paragraph 22 Schedule A1 of the TGCA 1992 interprets 'trade' to mean (subject to section 241(3) which deals with furnished holiday lettings) anything which:
a. is a trade, profession or vocation, within the meaning of the Income Tax Acts and
b. is conducted on a commercial basis and with a view to the realisation of profits.''
Commercial occupation of woodlands has historically never been within the meaning of trade. Up to 14 March 1998 the person occupying woodlands managed by him on a commercial basis and with a view to the realisation of profits would have been assessable under schedule B. It was, however, possible to make an election for the profits to be assessed under schedule D instead of B. This would, however, not alter the fundamental principle that the commercial occupation of woodlands was not a trade.
The fact that the commercial occupation of woodlands is not of itself a trade explains the reason why section 158, TCGA 1992, is required to extend rollover relief to the occupation of woodlands where these are managed by the occupier on a commercial basis and with a view to the realisation of profits. Without this provision such woodlands would not be within the scope of section 152. Section 165(9) is a parallel provision in respect of hold-over relief for gifts of business acts.''
 It goes on to say: 
''In order for woodlands to be brought within the taper relief regime for business assets, there would have to be a specific provision extending the relief to such woodlands. As this extension is not provided for then such woodlands do not qualify for business asset taper relief.''
 It is important to recognise that the world has moved on in relation to woodlands. The extension would be sensible, and it is relevant to a stand part 
 debate. I hope that the Paymaster General will consider the point very carefully. It has been brought forward by several people, somewhat late. Whether a clever point has been spotted, or whether it is part of a growing campaign, at least I have been able to put the matter on the record. 
 I do not intend to vote against the clause, but I hope that the point will elicit some interest on the part of the Paymaster General. I hope that she will be fascinated enough to look into the matter to bring the desultory percentage of woodland in this country back up to the level of the late 1980s, on the basis that we are all great environmentalists.

Dawn Primarolo: That was a fascinating point, but I am completely unaware of any representations that we have received on the woodlands issue. I congratulate the hon. Gentleman on branching out into new areas so dramatically.

Stephen O'Brien: Root and branch.

Dawn Primarolo: Indeed. The hon. Gentleman is scrutinising the legislation root and branch. Perhaps he has planted the germ of an idea—[Hon. Members: ''An acorn.''] Yes—great oaks and all that.
 On the capital gains tax taper relief and property, I have to be honest and say that I have no idea from whom the hon. Gentleman has received those representations. I look forward to receiving them and, even in the complex area of taxation of woodlands, to considering whether there is a serious point buried in the undergrowth that should receive serious consideration from the Government in due course.

Stephen O'Brien: The Paymaster General has clearly twigged the point. I hope that I will not leave any stone unturned.

Michael Jack: Does my hon. Friend agree that now that the enormity of what he has put before the Committee is beginning to sink it, it would also be in the interests of the Paymaster General to join with the Economic Secretary, because of the implications of what he was saying for the Government's targets on CO?2? and the consequential reference to carbon sequestration?

Stephen O'Brien: I am grateful to my right hon. Friend who is assiduous in his monitoring—

Dawn Primarolo: Not deciduous?

Stephen O'Brien: I was extraordinarily careful not to say deciduous. My right hon. Friend is assiduous in his monitoring of anything that relates to the internal and logical consistency of CO?2? emissions. We had the benefit of his earlier arguments on some of the motor issues.
 I am glad that the Paymaster General's interest has been engaged. I will sit down before I come up with some further appalling pun. 
 Question put and agreed to. 
 Clause 159 ordered to stand part of the Bill.

Nicholas Winterton: May I help the Committee? We have, if my arithmetic is correct, another four and a
 half hours of debate. We have something like 57 clauses, schedules and new clauses to consider. I urge the Committee to follow the example of recent minutes, turn over a new leaf and make even faster progress where that can be done without leaving out important issues. Clearly, I will always allow a clause stand part debate if a member of the Opposition feels that that is absolutely necessary, but some of the new clauses are particularly relevant and important. I make those comments merely to help the Committee. I am here as the servant of the Committee.

David Wilshire: On a point of order, I understand your point, Sir Nicholas. I hope, however, that you were not urging us to ignore matters of public interest that need to be debated properly. We have objected to the artificial timetable throughout.

Nicholas Winterton: I made it perfectly clear that I wanted all matters of importance to be dealt with by the Committee. I was merely giving guidance from the Chair, because I believe that it is important that the Committee deals with all important matters. Some matters are clearly more important than others, but it is up to the Committee to make that decision and not up to the Chair. I can merely give guidance.
 Clause 160 ordered to stand part of the Bill.

Clause 161 - Deferred unascertainable Consideration: election for treatment of loss

Stephen O'Brien: I beg to move amendment No. 249, in
clause 161, page 100, line 18, after 'assessment', insert 
 'or accounting period as defined by the Corporation Tax Acts. 
 (8A) This section shall apply in computing the allowable losses accruing after 9th April 2003 to a company within the charge to corporation tax.'.
 Having rapidly moved through clause 160, to help the Committee I should point out that I suspect that it will be detained over clause 162 and schedule 29. 
 Clause 161 deals with deferred unascertainable consideration and the election for treatment of loss. The Law Society of England and Wales has said that it generally welcomes the introduction of the relief to deal with the situation in which an asset is sold in exchange for a future right, which is treated as a separate asset for capital gains purposes, although in reality it comprises a second tranche of consideration for the original asset. That is the problem raised by the case of Marren v. Ingles. The clause ensures that any loss arising on that second asset can be utilised against any gain on the original asset, but the relief offered is more limited than that which the Law Society sought in the previous law reform memorandum or in discussions with the CGT review group. The Law Society understands that some aspects of what it has sought, such as aligning the taper relief status of the second asset with the original one and allowing the tax payments to match the receipts of cash, have been rejected as not being broadly cost neutral. However, it urges—which is why I am raising the matter—that those be borne in mind in any future, more general review. 
 This clause should ensure that losses suffered by companies as a consequence of the decision in Marren v. Ingles should be relieved in the same way as losses accruing to individuals. It is right in principle that companies, so long as they are taxed on chargeable gains computed similarly to those accruing to individuals, should be given relief for losses similar to that applying to individuals. It is not right that companies' gains in previous years, to the extent that they arise from the Marren v. Ingles rule, should not be eligible for an equivalent loss carry-back if less is realised from the second asset in due course than the value originally attributed to it. 
 That is the purpose of the amendment. It is not only put forward by the Law Society, but supported by the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales. I shall deal with the subsequent amendments separately.

Dawn Primarolo: The purpose of the clause is to make life easier for people selling, for example, a business or land in some cases where all or part of the proceeds are to come in a later year and where the amount of those later proceeds cannot be worked out at the outset. Those people will be able to sell with the confidence that they will not later have losses that they cannot use. That means that valuing the disposal proceeds for the business or land will be less fraught.
 Under the clause, a taxpayer may elect to carry losses arising on rights to deferred unascertainable consideration back to years when a taxable gain was made on the disposal of the original asset. Taxpayers must be within charge to capital gains tax. Individuals and trusts can thus benefit from a change, but companies within the charge to corporation tax cannot. 
 I understand the sentiment behind amendment No. 249, but I shall ask the Committee to reject it should it be pressed to a vote. I shall explain why I think that there is a more appropriate route for considering the issues. The clause addresses a specific problem raised in consultations with representative bodies, which is that some individuals might make a loss on the disposal of certain rights with no prospect of tax relief for that loss. The clause allows people who sell assets wholly or partly for that type of right to settle their capital gains tax liability on the sale, with an assurance that should things turn out worse than expected, there is the possibility of tax relief for a loss on the right. It offers practical help to people in such circumstances. 
 Companies are different. I appreciate that companies make deals where the consideration is wholly or partly in the form of one of those rights to deferred unascertainable consideration, but the tax rules for companies' capital profits are different from those for individuals, for example, where the rules for taxing loan relationships or intellectual property rights apply. The rules for allowing company losses also differ, for example, where a company is a member of a group. 
 We would have to consider the effects of those differences in practice before we could be sure that it 
 would be right for companies to have a similar tax treatment for losses on rights to deferred unascertainable consideration. The appropriate context for considering the tax treatment of capital gains and losses of companies, including how rights to unascertainable considerations are taxed, is the continuing consultation on the reform of corporation tax. The tax treatment of capital assets is an important strand of the overall reform programme, which is intended to respond to the changing business environment by reducing distortions and developing a modern, coherent and competitive tax system for companies. 
 A second consultation document on corporation tax reform will be published in the summer. If the amendment were accepted, companies might have to face two changes to the law on their rights in a relatively short period of time. Therefore, against the background of continuing consultation, it will be better for companies if we take forward an integrated and coherent reform of the tax regime, including the rules for capital assets. Extending clause 161 to companies would be, at best, a piecemeal change that may be no more than a temporary complication benefiting only a few companies in the short time that it lasted before a further change was made. 
 I appreciate the hon. Gentleman's point, but I hope that he will consider withdrawing the amendment so that people get a chance to make representations in the corporation tax reform consultation in the summer on the rights that are the subject of the clause. In that way, we can take forward the continuing reform of corporation tax in the context of a coherent and co-ordinated approach on which we have had time to consult business. However, if the hon. Gentleman is unable to withdraw the amendment, I shall ask my hon. Friends to oppose it, should it be pressed to a vote.

Stephen O'Brien: On the basis of the Paymaster General's helpful and constructive comments, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Stephen O'Brien: I beg to move amendment No. 250, in
clause 161, page 104, line 5, after 'losses', insert 
 'but more than one notice satisfying the requirements of this section may be contained in a single document'.
 The amendment would add a practical simplification. It is understandable that the consequences should be set out separately for different losses, as stated in proposed new subsection 279D(10), but it seems unnecessarily restrictive to preclude the details being provided in a single document, which would invalidate the claim for both losses. 
 The Law Society has helped with the suggestion that the provision be amended to provide that more than one notice satisfying the requirements of the section may be contained in a single document. The Chartered Institute of Taxation and the Institute of Chartered Accountants have also made similar representations. I look forward to hearing what the Paymaster General has to say.

Dawn Primarolo: Amendment No. 250 is intended to make things a little easier for people who want to make two or more elections at the same time under clause 161. I fully support the sentiment behind the amendment, but I hope to show that it is not needed to achieve our common aim.
 If a person incurs two or more losses and elects to carry them back to earlier tax years, clause 161 requires separate notices for each loss. The reason for the requirement is simple: it ensures that information about one loss is given separately from information about any other loss. 
 However, the requirement is only that the notice must be separate from any other notice. That does not mean that a separate letter, posted in its own envelope, must be sent to the Revenue for each loss. I assure the hon. Gentleman that a single letter would be satisfactory if it said, in effect, ''I am making two elections'' and gave all the details in the notice for the first election and then all the details for the second one. 
 Unfortunately, the amendment would create uncertainty. It casts doubt on current practice for other types of claim and election where similar words are not used. The Government have already made things as easy as possible. I hope that the hon. Gentleman is reassured that it is not our intention to cause duplication or more work. I hope that he is satisfied with my explanation, and is prepared to withdraw the amendment. If he does not, I shall ask my hon. Friends to oppose it.

Stephen O'Brien: I am grateful to the Paymaster General for putting on the record so clearly that she fully supports the sentiment and our common aim that a single document would be perfectly satisfactory provided that it states ''I am making two elections'' or words to that effect. On that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nicholas Winterton: I have received a request from the hon. Member for Billericay to have a clause stand part debate. As it relates to a matter not covered by the amendments I am happy to grant that.
 Question proposed, That the clause stand part of the Bill.

John Baron: I wish to raise two quick points with the Paymaster General and I would appreciate her feedback. The change implemented by the clause is welcome—that has been said before—but the provisions are somewhat over-complicated and perhaps unnecessarily restrictive. The clause spans five pages. Would the Paymaster General explain why it would not have been simpler to provide that where a loss arises on a right to honour ascertainable consideration it could be treated as arising in the year in which the right was acquired and carried forward? That would be a much simpler way of approaching the matter without resorting to five pages of provisions.
 The restriction of the election to circumstances where a gain has arisen on the original disposal is also unnecessary and could be removed. I shall very briefly give an example for which I am grateful to the Institute 
 of Chartered Accountants. Mr. A acquires shares in a trading company for £100,000. He sells the shares for £50,000—an earn-out right valued at £40,000. He therefore makes an allowable capital loss of £10,000. He has gains on other assets of £50,000. Two years later the earn-out is calculated and amounts to only £10,000. He therefore realises a loss on the earn-out right of something like £30,000—£40,000 minus £10,000. However, the crucial point is that he has no other gains against which to set the loss. In other words, his real loss on the capital disposal is £40,000 but he has received relief for only £10,000. 
 The Paymaster General may suggest that that is a theoretical example, but I have been informed that such circumstances have arisen—perhaps not with those exact figures. I would appreciate the Paymaster General's feedback on why the legislation seems somewhat unfair in its treatment of taxpayers in those circumstances.

Dawn Primarolo: I am a little perplexed by the hon. Gentleman's assertion that somehow the clause is unfair to taxpayers. The changes were welcomed, and the discussions with representative bodies were based on the question of allowing for a bigger change, which was the subject of the amendments, particularly with regard to companies.
 The suggestion is that the effect is too complex, but in many cases it will be simple. There will be just one gain and one loss to consider, and the gain will absorb the whole of the loss. The provisions are inevitably lengthy because they have to take account of all the possible circumstances in which gains and losses may arise. A link must also be established between the loss and the gain on the original asset. The fundamental purpose of the clause is to allow the loss on a right to be set off against gains on the original asset in earlier tax years. Allowing the loss to be set off more widely would break the essential link between the loss and those gains. If the loss cannot be wholly used in that way, then the unused part can be offset against gains on an asset in the year in which the loss arose. Any remaining unused amount will be carried forward and set off against gains in later tax years under the normal rules. 
 The new carry-back of losses is intended to allow losses to be offset against gains on the original asset, as I have said. It is fair to allow that, because the gain and the later loss on the right to deferred consideration are linked. However, there is no case for allowing the carry-back of a loss on the disposal of a right where there are no gains on the original asset. In those circumstances, there can be no capital gains tax liability in respect of any gain on the original asset, so there is nothing against which the loss should be offset. 
 Although I am happy to look again at what the hon. Member for Billericay has said, in taxation matters, balances always have to be struck, in the objectives and operation, for the greatest number of taxpayers. I believe that the clause does that, and I commend it to the Committee. 
 Question put and agreed to. 
 Clause 161 ordered to stand part of the Bill.

Clause 162 - Transfers of value: attribution of gains to beneficiaries

Stephen O'Brien: I beg to move amendment No. 208, in
clause 162, page 105, leave out lines 21 to 39.

Nicholas Winterton: With this it will be convenient to discuss the following:
 Amendment No. 209, in 
clause 162, page 105, line 28, leave out 'that date' and insert '9th April 2003'.
 Government amendment No. 297.

Stephen O'Brien: I am afraid that having reached this clause, it is time to hold on to our hats. It is very complex and the way in which the selection, although I do not blame the committee of selection for it—

Nicholas Winterton: Order. I say to the hon. Gentleman that the Chairman of the Committee is responsible for the selection of amendments and I know that there will be no criticism of me from him.

Stephen O'Brien: I am sure that the fact that I referred to a committee rather than to you personally, Sir Nicholas, shows that I was mindful of that.
 The clause is very complex and there are a number of proposed alternatives. The way in which we will debate for the help and efficiency of the Committee does not sit easily. Amendments Nos. 208 and 209 and Government amendment No. 297 contain alternatives if the Government are not prepared to accept our preferred position, which is new clause 4. That is the most obvious solution to the problem that I am going to outline and to the mischief that we think could be created by the Bill as currently drafted. 
 Furthermore, there are amendments to schedule 29, to which we shall come later: amendments Nos. 210, 212 and 211.

Nicholas Winterton: Order. The hon. Gentleman has been extremely helpful to the Chair in explaining the problem as he sees it. I should be perfectly happy for new clause 4 to be grouped with the amendments that we are currently debating, but if that happens, it will not be my inclination to have a clause stand part debate. If I indicate from the Chair that in addition to the lead amendment No. 208 and amendments Nos. 209 and 297 we shall also debate new clause 4, that may be for the convenience of the Committee, and be a sensible debate. If the Committee is happy with that, I am perfectly happy that it should be the case.

Stephen O'Brien: I am grateful to you, Sir Nicholas. I should like to respond affirmatively to that offer. I think that it would be helpful to the Committee to take all those together.

Nicholas Winterton: May I ask whether the Government agree?

Dawn Primarolo: Yes, we do.

Stephen O'Brien: I shall be completely honest. I have looked into this in extreme detail and tried to outline the problem in the simplest way, but I have ended up with six pages of closely typewritten notes. For the
 purposes of the argument, I should place those on the record, but I am conscious of the need to make progress in Committee, so I shall try to be as brief as I can. I mention the caveat that, inevitably, the full range of arguments that I feel is important and supports my case will not, therefore, be put on the record. That said, if we get into a debate, I might come in rejoinder to some of the points that I shall now leave out. That will be part of the normal process of discussion.
 The provisions on transfers of value and attribution of gains to beneficiaries are lengthy and very complicated, and have a much broader application than merely catching the apparent mischief. Connected with the various provisions in the clause is a concern that we are dealing with a number of shortcomings in the drafting of the present legislation. 
 It is clear from a Budget press release—Revenue Budget note 33—that clause 162 and schedule 29 are intended to counter schemes made possible by section 90(5)(a) of the Taxation of Chargeable Gains Act 1992. Accordingly—I am putting this at its simplest—a better approach would be simply to repeal the offending subsection. Instead, the approach taken is to amend existing legislation, schedule 4C to the TCGA, which is extremely poorly drafted. The predictable result is legislation that is broad and difficult to make sense of. 
 I have received representations from, as well as all those that are regularly cited in our proceedings, a range of individuals and professional firms, including lawyers and investment managers. They form the largest section in the file that I have on the whole Finance Bill. The measure is causing considerable anxiety and concern. 
 It is particularly concerning that innocent transactions not intended to be caught by schedule 4C will now fall within it. Conversely, these provisions are so complex that they will inevitably open up new avoidance opportunities, if we are completely honest about the real world. The schemes that the provisions are intended to catch should instead be stopped by repealing the provision that made them possible in the first place. In the longer term, it would seem appropriate to have consultation on replacing schedules 4B and 4C to the TCGA with provisions that counter artificial schemes without either catching innocent transactions or creating new loopholes. 
 New clause 4 is our preferred solution. It would leave out the offending provision, subsection 90(5), which I think would suit everybody. I do not like to make assumptions, because I feel that on this occasion the Paymaster General may feel an overwhelming spirit of generosity come upon her, but if that proposed, obvious solution is not adopted, one will have to look at alternatives. There are alternatives but they are not by any means as simple or satisfactory. Amendment No. 208 deals with the retrospective effect of the clause. As I am sure Committee members are aware from dealing with retrospection, it is incumbent on us when scrutinising legislation to consider whether someone who, in good faith on the basis of legislation passed by Parliament at the behest of a Government, may suddenly be caught for something that they 
 thought was proper and legal at the time. That is a major issue that can cause grievance and a feeling of unfairness among citizens. 
 I am concerned that new section 85A is retrospective in effect because of the reference to 21 March 2000. I am sympathetic to the Revenue's position, but it should have got the drafting correct when it was introduced. The retrospective effect of the provision will penalise those who have made arrangements that would be legal if it were not for the changes introduced by clause 162(4). Furthermore, the level of penalty is over and above that which they would have suffered had the arrangements not been entered into in the first place. In addition to the injustice, the penalty is punitive.

Dawn Primarolo: Does the hon. Gentleman accept that the purpose of the schemes that the Government seek to close is to avoid a legitimate tax charge that has been in place since 1981? Those who play with fire must expect to have their fingers burned when the Government restore the legislation.

Stephen O'Brien: I am grateful for the Paymaster General's intervention, but it is our job as a Parliament to get the drafting of legislation right. It would be wrong of me to dispute that those who play with fire can expect to suffer fire, but it is our job to get legislation right, not least on taxation.

Dawn Primarolo: What could be clearer than the Finance Act 1981, which stated that there should be a charge? If taxpayers have found a way of not paying that charge when the legislation clearly states that they should, they are playing with fire and can expect any Government to act.

Stephen O'Brien: I shall not take issue with the Paymaster General on that because I would be misdirecting our concern. The provision should be amended to ensure that it will apply only when trustees have made transfers on or after Budget day and are expected to take the new legislation into account. Such an amendment would avoid the nonsense of schedule 4B and section 85A of the TCGA requiring settlements that had factually ceased to exist being regarded as continuing to exist. It is wrong in principle that anti-avoidance legislation should be backdated by a lengthy period to a time when taxpayers would have had no inkling of the legislation that would apply to them. That is bound to diminish respect for the law and discourage citizens from trying to ascertain and comply with the law, the terms of which cannot be known until long after the event.
 The Paymaster General flagged that she is not minded to accept the amendment, but it seems that the backdating issues have become serious for a number of people. Not least, I note that there is no reference in the Government's amendment to the concern about retrospection. The clause seeks to catch any trusts that make a capital payment to beneficiaries after 9 April 2003. That is one level of retrospection. Even if the flip-flop tactic—the Committee will be familiar with flip-flop between tax periods—worked at the time of the transfer, it is now deemed not to have worked in 
 respect of any payments made after 9 April 2003. That is retrospectively closing a loophole created by poor drafting.

Michael Jack: I am trying to follow my hon. Friend's careful argument in detail. Given that the April date to which he has just referred is effectively the beginning of the new tax year, can he explain how an element of retrospection would apply to a situation in which the taxpayer had not necessarily completed their return for the tax year 2003–04?

Stephen O'Brien: I am grateful for my right hon. Friend's contribution because it gives me the opportunity to seek to explain the matter. He will recognise that the process of disentangling the complex representations on the clause—let alone the clause itself—is interesting.
 The provisions apply only to transferred pools rather than normal pools in which there have been no flip-flop transfers. Any transfers between trusts in the period from 21 March 2000 to 9 April 2003 create a pool in the recipient trust to which the provisions apply in the absence of any other provisions. My right hon. Friend will appreciate that that is harsh given that anyone carrying out such a transfer in that period could not have known about the provisions. Although the provisions are backdated to April 2003, those conducting a flip-flop expected the provisions to apply after the date of the flop. The issue concerns the expectation of the carry-over on the tax periods. 
 Government amendment No. 297 will make the position worse, not better. Subsection (4) of proposed new section 85A states that the provisions of schedule 4C relating to capital payments to beneficiaries not chargeable to tax would not apply to a case within paragraph (b). The Government amendment will ensure that the provisions will not apply to payments to beneficiaries not chargeable to tax only where the payment was made before 9 April 2003. Thus if the transfer were made in the period from 21 March 2000 to 9 April 2003 and the payments were made today, payments to non-taxable beneficiaries would be ignored. That would happen because the relevant rules were not in force at the time of the transfer. 
 That deals with my concerns about Government amendment No. 297, but I have not addressed the problem of retrospection.

Rob Marris: Following on from the point made by the right hon. Member for Fylde on retrospection, the Government are seeking to change the rules so that a transaction that has not yet crystallised—to use the hon. Gentleman's word—will become taxable. Somebody who would have flop-flipped back into the original pool because they anticipated that the measure would lead to a future tax saving will not do so because of the change in the legislation. There is therefore no actual retrospectivity. I understand that the rules apply to offshore trusts, and legislators in Parliament always place a question mark against those who use offshore trusts.

Stephen O'Brien: I recognise the hon. Gentleman's point about flop-flipping as against flip-flopping. I also
 recognise that somebody making their dispositions and arrangements must exercise a degree of judgment in deciding what will or will not take place in legislation. On the one hand that is a risk because they cannot know what will appear in legislation applying to a particular tax year. On the other hand a course of conduct and practice can become established.
 The transactional arrangements on offshore trusts are clearly sensitive and are made under the public's gaze for various reasons of which we are all aware. However, offshore trusts exist and just because they are called offshore trusts does not mean that we should examine them with a sense of dark clouds and foreboding. Offshore trusts have existed for many years, for perfectly legitimate and proper reasons. We should not simply write them off as something to be condemned because they are offshore. They are not attractive to the Revenue because they are not within the tax net for the whole of the United Kingdom, which raises questions on what is a legitimate catch. 
 The comment on the clause has been interesting. In an article in Taxation on 5 June 2003, Emma Chamberlain argues that 
''the Finance Bill seems to have gone further than is appropriate or justifiable . . . First, and most importantly, the clause is retrospective in effect . . . it completely rewrites the tax consequences of an event that has already occurred.''
 The hon. Member for Wolverhampton, South-West (Rob Marris) made the point that the transaction had not crystallised—arrangements have to be put in place when one deals with offshore jurisdictions—but it has nevertheless occurred. 
Rob Marris rose—
Mr. Jack rose—

Stephen O'Brien: I suspect that the interventions are on related points, so I may give way twice.

Michael Jack: I seek to understand the logic of my hon. Friend's argument and that of the article from which he has just quoted. Was the expectation of the taxpayer a 1981 event or an event that was subsequently invented because of a reinterpretation of the 1981 situation? Can he help me on that point?

Stephen O'Brien: No. Does the hon. Member for Wolverhampton, South-West also want to intervene?

Rob Marris: On a related point, I do not have the same knowledge of the matter as the hon. Gentleman, but I think that the retrospection issue relates to my point about crystallisation. I would characterise the transaction as not having crystallised, because when a sum has been flip-flopped from one settlement to another—which is crudely what the argument is about although there may be a chain of settlements—it is only when the distribution is made that the tax liability arises. If the clause is passed today and on Report, the distribution might not take place in the same way as it otherwise would have done, but that is not retrospection.
 To trespass on your generosity, Sir Nicholas, is the situation not like my ordering a boiler because I believe that the Government will issue an energy efficiency grant, but finding when the boiler is 
 delivered that the grant is no longer available? That would not constitute retrospective withdrawal by the Government.

Stephen O'Brien: The position in the example that the hon. Gentleman prays in aid to support his point would be, ''Tough.'' The point made by my right hon. Friend the Member for Fylde was helpful.

Rob Marris: It was a probing intervention.

Stephen O'Brien: The nature of the probe is such that I cannot make a judgment on what was in people's minds in 1981 or 2003. The point is that many people believe that they are genuinely affected and disadvantaged by the proposal. One could say that they have taken a risk and that, like the example of the hon. Gentleman's boiler, that is tough. There is a longer chain of setting up a transaction in taxation affairs; a greater degree of clarity and certainty is therefore required.

Rob Marris: Another example, which happened under the Conservative Government, has occurred to me. How is the case that we are discussing different from the tapering and ultimate abolition of mortgage interest relief? When people bought houses on a 25-year mortgage, many of them expected—perhaps without really thinking about it—that mortgage interest relief at source would continue for the full term of the mortgage, but they found that that did not happen. That change was not characterised as being retrospective. The individual could have decided that the game was no longer worth a candle and sold their house.

Stephen O'Brien: The hon. Gentleman has made his point. One can draw distinctions based on that example, but I shall not be drawn down that channel because the matter is complex enough without introducing MIRAS and tapered relief.
 I have dealt with our preferred position on new clause 4, amendment No. 208 and Government amendment No. 297. Amendment No. 209 clarifies the meaning of subsection (4)(b)(ii) of proposed new section 85A. In case my more general amendment to remove retrospection is not adopted, although I very much hope that it will be, I should point out that the words ''that date'' at the end of clause 162(4)(b)(ii) could refer to 9 April 2003, which is mentioned in line 22, or 8 April 2003, which is mentioned in line 25. It would be clearer if 9 April 2003 were substituted for ''that date''. Amendment No. 209 is purely related to clarification and is therefore somewhat easier to deal with. However, it is relevant only if the Government do not accept new clause 4. 
 On the basis that we have dealt with the new grouping under your ruling, Sir Nicholas, I beg leave to move the amendments standing in my name and the new clause. I guess that it is for the Government to move their own amendments.

Nicholas Winterton: Order. The hon. Gentleman merely needs to move the lead amendment—amendment No. 208—and he has already done that.

Michael Jack: I listened to my hon. Friend the Member for Eddisbury with great care and I congratulate him on the precision with which he condensed six pages of
 notes into a shorter presentation. Like the hon. Member for Wolverhampton, South-West, I have not studied the matter in detail, but some important principles have been raised by my hon. Friend's comments.
 As I understood the point about retrospection that lay at the heart of my hon. Friend's remarks, taxpayers affected by the amendments and the clause are conducting their affairs in accordance with their understanding of the law as it is now. The Government see the law as taxpayers are interpreting it as an avoidance issue, so they seek to return to the 1981 status quo. If that is what the Government are saying, if the situation has not been challenged between the initiation in 1981 and now, and if the things that have enabled taxpayers to avoid tax have been maintained without challenge, there is an interesting question about the legitimate understanding of the tax code at the time. I pose that question to my hon. Friend. 
 If those involved in the flip-flopping activity thought, ''Ah yes, we have a mechanism that gets round the purpose in 1981,'' they were taking a risk. They would have said to themselves, ''Well, it's always open to the Treasury to stop it.'' Many avoidance schemes are marketed as a result of clever people considering the tax law and deciding that if they do something in a particular way, they can get round a provision, but it is always on the basis that they can do so only for the time being. Any measure that seeks to deviate from the original tax position as it would have been in 1981 is by definition an artificial construct. It does something different from what happened in 1981. I do not have much sympathy if the good times come to an end, which appears to be the situation that my hon. Friend described. 
 I do not want my hon. Friend to expose himself by justifying a tax avoidance mechanism when those who designed it knew full well that it was a change from the spirit and purpose of the 1981 legislation.

Stephen O'Brien: For someone who says that he has not studied the area, my right hon. Friend has picked up the point exceptionally fast and well. The technicalities of the clause are unquestionably complex. We are dealing with some serious principles and fundamental ideas about the rights and wrongs of taxation in this area. Although I do not take issue with my right hon. Friend's description of what the Government are seeking to achieve, our approach in this case is not prompted by support for tax avoidance—it is not that we think that those who took risks from 1981 onwards were right in assessing those risks in the way that they did—nor do I want to expose myself—far from it. I have demonstrated that we are trying to be responsible.
 With your indulgence, Sir Nicholas, as this is a long intervention, my argument is an analogy to the law of prescription such as when someone goes on to land. It has taken until 2003—22 years—to correct a 1981 risk, on which people have acted in course of conduct. There is a degree to which, by the normal principles of prescription, that we can deal with that.

Michael Jack: I am grateful for your indulging my hon. Friend, Sir Nicholas, because his intervention has provided a legitimate reason why retrospection must be addressed in a slightly different way than if the Government had created a new tax law, then said that it applied to events that had occurred five years earlier under a previous code.
 The Paymaster General must address my hon. Friend's point, because if something went unchallenged for a period of time, it is quite possible that the flip-floppers might have said, ''This is the way it is. Everyone has accepted the interpretation—the status quo—so we are doing nothing wrong.'' If they arranged their affairs on the basis that they had done nothing wrong because no one had challenged them, it is interesting to debate whether the Treasury should not say, ''Oh dear, we got it wrong in 1981, so we had better put it right for the future,'' and accept that what happened was a consequence of drafting in 1981 that was perhaps not the best. I look forward with keen interest to the Paymaster General's response.

Dawn Primarolo: I do not deny that the combination of offshore trusts, capital gains tax and complex anti-avoidance schemes is a poor recipe for simple legislation. However, in practice, only those trustees, advisers and individuals who get involved in complicated artificial schemes should need to operate the new provisions. Anyone who engages in transactions that would avoid a charge that has been around since 1981 need not be surprised by the Government's acting to stop them or by the means by which the Government do so.
 Let me deal with the question of retrospection before dealing with the amendments. The Finance Bill 2003 in no way extends the taxpayer population caught by the Finance Bill 2000 legislation on flip-flops. Let us remind ourselves briefly what a flip-flop is. It is a structure that is used to pay out a gain realised offshore so that the beneficiaries avoid tax on it. There is a question about whether anything has been done in the past 23 years. Governments have challenged flip-flops. Originally, they were challenged by the 1981 legislation, and the problem was readdressed in 2002. The 1981 legislation was designed to ensure that the beneficial charge was paid. The 2000 legislation returned to the matter because new ways had been found to get around the legislation. The new flip-flops that we now have to deal with return to the theme of how to get round the 1981 legislation. The 1981 legislation was put in place to tackle flip-flops and stood the test of time for a reasonably long period. In 2000, the Government returned to the matter, and now we are returning to it again. I beg your pardon, Sir Nicholas. I think I said 2000, but I meant 2002. 
 To pick up the point about articles on taxation, the Finance Act 2000 sought to eliminate investment flip-flops. An article in Money Management stated that 
''tax planners found a loophole in the way that the rules were drafted which enabled them to continue to use flip flop transfers. Budget 2003 announced the Revenue's intention to bring to an end to flip flop transfers once and for all which duly happened on 9 April 2003.''
 It went on to say: 
''While the abolition of this option removes an advantageous planning tool, the numbers of trusts that could be affected are very small. The fees for arranging such a transfer are enormous and so this tool is only suitable for high or ultra high net worth investors.
According to estimates by Susan Johnson, senior tax consultant at Moore Stephens, the accountancy, trustee and barrister fees would amount to £80,000-£100,000.''
 The article in Taxation magazine on 5 June was also referred to. 
 We have designed the legislation to cater for cases in which there has been a transfer of value before Budget day, but we have altered only the possible consequences of later transactions, not the tax effects of the transfer itself. To avoid retrospection we have limited clause 162 so that it can operate only where there is payment to a beneficiary on or after Budget day. No capital gains tax charge can arise unless such a payment is made. In most cases it is entirely up to trustees to decide whether, when, or in what amounts they make such payments. 
 I return to the amendments and the point of the 1981 legislation that introduced the beneficiary charge in order to set in motion the question of what we seek to do. The new provisions counter the latest flip-flop avoidance scheme designed to allow UK beneficiaries of offshore trusts to escape a capital gains tax charge when they have received payments from trustees for whom capital gains have arisen. It is right that in such circumstances there should be a tax charge—otherwise, UK individuals using offshore trusts would gain an unfair tax advantage. The charge that the new scheme is designed to avoid has been in place since 1981. We have previously legislated against devices that are designed to avoid the charge and I have made it clear in the past that we are determined 
 to clamp down on new sorts of avoidance, should they arise. The clause puts a stop to the second generation of flip-flops, and ensures that payments to UK beneficiaries are fairly charged to UK tax. 
 The clause contains two other rules to prevent further avoidance opportunities. First, it will prevent payments to non-chargeable beneficiaries being used to soak up capital gains, thus diluting or eliminating the charge on UK beneficiaries. It will do so only where transactions have been carried out that fall within the anti-flip-flop legislation introduced in the Finance Act 2000. The clause will ensure that the new measure interacts with the rules on temporary non-residents, both to avoid any double-charging and so that a UK beneficiary cannot escape the charge by going abroad for a year or so and receiving the payment while a non-resident. 
 The amendment No. 208 would appear to eliminate what is wrongly interpreted as a retrospective element of clause 162 and schedule 29. The new provisions are not retrospective. The charge that the scheme aims to avoid is known as the beneficiary charge, and that charge arise when a beneficiary receives payment from the trust. The new provisions apply only where such payments are made on or after Budget day. The new provisions do catch cases in which some but not all of the necessary steps for the avoidance to work have been carried out before Budget day, but that does not make the legislation retrospective. We have deliberately designed the provisions to catch such cases. 
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.